IMF to help Ukraine with up to $18 billion bailout

By PETER LEONARD Associated Press

Posted:
03/27/2014 02:25:53 AM MDT

Updated:
03/27/2014 03:42:41 PM MDT

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Members of the right wing ultra nationalist Right Sector group block the parliament building in Kiev, Ukraine, Thursday, March 27, 2014. Activists demanded the resignation of the Interior Minister following the recent killing of a Right Sector member Oleksandr Muzychko, who was died during a police operation to detain him.

KIEV, Ukraine—The world rushed Thursday to help Ukraine, with the International Monetary Fund pledging up to $18 billion in loans, the U.N. condemning the vote that drove Crimea into Russian hands and the U.S. Congress backing even harsher sanctions against Russia.

Yet even with such intensive help to prop up the teetering economy, Ukraine's prime minister warned of painful times ahead from economic reforms that were sure to drive up energy prices.

Meanwhile, Yulia Tymoshenko, one of the country's most divisive figures, announced she would run for president—a move sure to impact Ukraine's turbulent politics.

President Barack Obama called the swell of international support a "concrete signal of how the world is united with Ukraine.

Members of the right wing ultra nationalist Right Sector group block the parliament building in Kiev, Ukraine, Thursday, March 27, 2014. Activists demanded the resignation of the Interior Minister following the recent killing of a Right Sector member Oleksandr Muzychko, who was died during a police operation to detain him. ((AP Photo/Efrem Lukatsky))

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"The decision to go forward with an IMF program is going to require a lot of courage," Obama said, speaking in Rome. "It will require some tough decisions."

In a passionate address to parliament in Kiev, Prime Minister Arseniy Yatsenyuk warned that Ukraine was "on the brink of economic and financial bankruptcy" and laid out the fixes needed to put the country back on track.

"The time has come to tell the truth, to do difficult and unpopular things," Yatsenyuk said, adding that Ukraine was short $25.8 billion—"equivalent to the entire state budget for this year."

The IMF loan, which is expected to range between $14 billion and $18 billion, hinges on structural reforms that Ukraine has pledged to undertake.

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Ukraine's new government finds itself caught between the demands of international creditors and a restive population that has endured decades of economic stagnation, corruption and mismanagement.

The reforms demanded by the IMF—which include raising taxes, freezing the minimum wage and hiking energy prices—will hit households hard and are likely to strain the interim government's tenuous hold on power.

Members of the right wing ultra nationalist Right Sector group block the parliament building in Kiev, Ukraine, Thursday, March 27, 2014. Activists demanded the resignation of the Interior Minister following the recent killing of a Right Sector member Oleksandr Muzychko, who was died during a police operation to detain him. ((AP Photo/Efrem Lukatsky))

Ukraine, a nation of 46 million, is battling to install a semblance of normalcy since President Viktor Yanukovych was ousted in February after months of protests ignited by his decision to back away from closer relations with the EU and turn toward Russia. Over the last few weeks, an interim government has formed, Ukraine lost Crimea to Russia and further possible military incursions by Russia are feared.

"This is a kamikaze government that perfectly well understands that there is no other way to stabilize Ukraine," said Viktor Zamyatin, analyst with the Kiev-based Razumkov Center think tank. "The catastrophic state of Ukraine's economy has forced the government's hand."

But he said it could pay a steep price.

"It is hard to explain to the voter that the worsening of the economy has happened not because of the revolution, but because of Viktor Yanukovych's policies," he said.

One unpredictable source of potential unrest comes from the nationalist Right Sector movement, which rallied hundreds of protesters outside parliament on Thursday in a demand for Interior Minister Arsen Avakov's resignation following the killing this week of one of their leaders. The group played a key role in bringing about Yanukovych's ouster.

"The power is trying to rob our victory from us. But it is we that should be dictating terms, and we have the means to do this," declared 31-year-old Anton Turilo, who was wearing a helmet and camouflage gear.

In Washington, Congress overwhelmingly backed legislation in the House and Senate to aid cash-strapped Ukraine and punish Russia for its annexation of Crimea.

On a voice vote, the Senate approved a measure that would provide $1 billion in loan guarantees to Ukraine and give Obama broad authority to impose more sanctions on Russia and President Vladimir Putin's inner circle.

The House endorsed a different version on a 399-19 vote that also provides assistance to Ukraine and penalizes Russia. Lawmakers hope to send a single bill to the White House for Obama's signature by week's end.

Sen. Bob Menendez, D-N.J., chairman of the Senate Foreign Relations Committee, said the votes were "critical for President Putin to hear."

"We are in a dangerous moment in history with global consequences and the world is watching," he said.

Meanwhile, in a sweeping rebuke of Moscow, the U.N. General Assembly overwhelmingly affirmed Ukraine's territorial integrity and deemed the referendum that led to Russia's annexation of the Crimean Peninsula illegal. The vote was 100 in favor, 11 opposed and 58 abstentions.

Russia shrugged off the torrent of criticism, announcing it would set up its own payment system to rival Visa and MasterCard after the two companies pulled their services from some Russian banks in the wake of international sanctions.

Tymoshenko, who was released from prison last month following the overthrow of her fierce rival Yanukovych, is variously admired as an icon of democracy or detested as a self-promoting manipulator with a shady past.

This will be the 53-year-old Tymoshenko's second attempt to win the presidency. She narrowly lost to Yanukovych in 2010 and spent two years in jail on charges that many in the West considered politically motivated.

"I will be the candidate of Ukrainian unity," Tymoshenko said in announcing she would contest the May 25 election. "The west and center of Ukraine has always voted for me, but I was born in the east."

While western regions of Ukraine favor closer ties to Europe, the eastern part of the politically divided nation has long aligned with neighboring Russia.

Still, the dire state of the economy is an unavoidable issue: Ukraine's Finance Ministry has said it needs $35 billion over the next two years to prevent default.

"Ukraine's macroeconomic imbalances became unsustainable over the past year," the IMF said.

One immediate reform will be to let gas prices for households float up to become more in line with market prices. Ukraine for years has relied on discounted gas from Russia and then subsidized that further, so that residents are used to extremely low energy prices. Russia has abandoned the discounts and Ukraine's government cannot afford the extra subsidy.

Other donors, including the European Union and Japan, have already pledged further aid to Ukraine, conditional on the IMF bailout and reform package. The total amount of international assistance will be about $27 billion over the next two years.

Separately, the 28-nation EU has prepared a wider aid package including loans and grants for Ukraine expected to total more than $10 billion over the coming years.

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Yuras Karmanau in Kiev, Ukraine, Nataliya Vasilyeva in Moscow, Juergen Baetz in Brussels, and Deb Reichmann and Donna Cassata in Washington contributed to this report.